Normally the dull end of the real estate world (meant in the nicest possible way), the social housing real estate investment trust (REIT) sector has thrown up two of the biggest pieces of news this week – Civitas Social Housing (CSH) coming under attack from a short seller and Home REIT (HOME) raising £350m in a hugely oversubscribed issue. Completely contrasting in nature, both will have caught the attention of investors.
Short seller ShadowFall published an open letter to the board of CSH this week (having trailed it in the Sunday Times almost two weeks ago), outlining its concerns around the transparency of disclosures regarding certain transactions and the viability and quality of the group’s rental income.
We don’t think it is fair to make comment on these until CSH makes a detailed response to the questions thrown up by ShadowFall, which it has promised to do in due course. We will, of course, keep you fully posted.
After the letter was published on Wednesday, CSH’s share price tumbled 6.3% to 90.6p at close on Thursday (making ShadowFall hundreds of thousands on its 0.82% short position in the company). Since 5 August, the share price has lost 25% from its peak of 120.6p. Some of this would have been due to the company falling out of the FTSE 250, as tracker funds sell out of their positions.
It will be interesting to see how this impacts on the ongoing launch of Responsible Housing REIT.
Better news for the sector came from Home REIT, the homeless accommodation investor, which raised £350m – far exceeding its target of £262m. It’s very pleasing to see this level of investor interest in the fund.
The group, which only IPO’d in October 2020, has built a £328m portfolio that has taken more than 3,800 people off the street or prevented them from becoming homeless. This will now more than double, and we expect the investment manager to deploy the funds from the equity raise quickly into its £400m pipeline of assets.
The social good is obvious and is part of the reason behind the popularity of the issue. The other is the investment case. There is a structural supply/demand imbalance in the sector, which HOME aims to fix. An estimated 200,000 people are without a permanent home in the UK and a change in the law in 2018 placed a legal obligation on local authorities to house these people.
HOME buys carefully selected properties (not tower blocks but small apartment buildings) and leases them to charities, which provide care and support to tenants. The charities collect housing benefits on behalf of the tenants, and the trust collects rent from the charities directly – making the income effectively 100% government-backed.
HOME’s manager has talked about becoming a £1bn trust in the next three to five years. After this raise, there is not reason why this couldn’t be achieved earlier. Here’s hoping.
QD view – HOME run and a strike out?